Tesco sets up sourcing arm to buy food from India

MUMBAI: Tesco Plc has set up an Indian subsidiary to buy fresh and processed foods from the country for its global stores, in a move that could help the world's third largest retailer trim costs and develop local expertise before opening shops here.

"Fruits, marine, rice would be a few of the things we would be exploring," said a spokesperson at the UK retailer, which already buys around 7% of its international sourcing from India.

Tesco has been sourcing general merchandise and apparel from India since almost a decade through its international sourcing company's offices in Bengaluru and New Delhi that act like liaison centres.

This is the first instance of Tesco opening a sourcing arm in the country. The spokesperson said it will bring new opportunities for suppliers of food and other goods in India.

Industry experts say having a local company will help Tesco build back-end operations and negotiation clout among suppliers, which will be handy when it decides to enter the country's estimated $400-billion, or about Rs 22 lakh crore, retail market.

"The capabilities that they will develop on food will stand them on a good stead once they scale up their India operations," Abheek Singhi, partner and director at Boston Consulting Group, said.

BCG estimates that food is the largest consumption category in the country, accounting for 31% of total consumer spends.

Almost three weeks ago, Indian Parliament gave the goahead to foreign supermarkets to invest in India, paving the way for global companies such as Walmart, Carrefour and Tesco to operate retail stores in partnership with Indian companies.

Tesco in India has a franchisee agreement with Tata's retailing arm Trent Ltd to provide retail expertise and supplies for the latter's Star Bazaar hypermarket chain.

While India has for long allowed 100% overseas ownerships in wholesale companies that are only allowed to sell to retailers and businesses, Tesco hasn't opened any such store unlike its global rivals such as Walmart and Carrefour.

Tesco earlier this year said it plans to source products with a retail value of 370 million pounds (about .`3,270 crore) from India in the 12 months ending February 2013, up from 325 million pounds (about Rs 2,875 crore) in the previous year.

The new move comes at a time when Tesco is going slow on global expansion due to sluggish sales in the West, including its home market. Earlier this month, Tesco signalled it might exit its struggling supermarket in the United States, and that it had appointed advisors to "review" the future of its Fresh & Easy neighbourhood grocery store chain in that country.

The Indian market is one of its last bastions for growth. Earlier, this month ET had reported that Tesco chief executive Philip Clarke made a hushhush visit and met Tata Group chairman Ratan Tata and other Tata Group officials to set the ball rolling on the retailer's India plans.

International media reports suggest that Tesco has zeroed in on Mumbai and Bengaluru for its possible India debut.